Director Service Contracts in Kenya: What to Include

A director’s service contract is easy to draft badly. Companies copy an employment template, add a fee, and discover later that parts of it are void, that the company never obtained the approvals the Act requires, or that the contract promises a protection the law refuses to enforce. This article lists what a Kenyan director’s service contract should contain, and where the Companies Act and the Employment Act override what the parties wrote.

What counts as a director’s service contract

Section 190 of the Companies Act, 2015 defines a director’s service contract as a contract under which a director undertakes personally to perform services for the company, as director or otherwise. The provisions on service contracts also apply to the terms of a person’s appointment as a director. A non-executive director’s letter of appointment is therefore covered, even though it does not necessarily create a contract of service under the Employment Act. Our article on whether a director is an employee explains the distinction.

What to include

• Parties and capacity. Say whether the person is appointed to an office, employed, or engaged as an independent supplier. Name the board role and any committee roles.
• Term and exit. State the start date, any fixed term, and the notice either side must give. Use the same notice in every version of the document.
• Remuneration. Set out fees or salary, expenses, and how tax is treated. Our article on PAYE or VAT covers the choice.
• Duties and time commitment. Refer to the statutory duties and add expected meeting attendance and preparation.
• Conflicts and outside interests. Require disclosure and set the process for approvals.
• Confidentiality and company property. Cover documents, systems and handover on exit.
• Independence, where it matters. For regulated firms, avoid terms that create a contract of service. See our article on independent directors.
• Insurance and indemnity. Record what cover the company will maintain and any indemnity within the Act’s limits.
• Governing law and disputes. Kenyan law, with a clear forum.

What the Companies Act overrides

Removal. Under section 139 members can remove a director by ordinary resolution, with special notice, despite any agreement. A clause promising a guaranteed term does not prevent removal from the board. It may only give the director a claim for the contractual consequences.

Long guaranteed terms. Section 157 requires members’ approval for a provision under which a director’s employment is guaranteed for more than two years. A long fixed term without that approval is exposed.

Exemption and indemnity. Section 194 voids provisions that exempt a director from liability to the company or indemnify them against it, except as the Act allows. Insurance (section 195) and qualifying third party indemnities (section 196, with exclusions) are the permitted routes. Our article on indemnifying directors sets them out.

Filing. A change of director must be notified to the Registrar within fourteen days (section 138).

What the Employment Act overrides

If the director is also an employee, the Employment Act applies. Section 3(6) treats its terms as minimum terms and makes any agreement to waive them void. The contract cannot cut notice, leave or termination rights below the statutory floor. Section 35 sets the framework for termination by notice, which a contract can lengthen but not shorten.

Drafting traps

• Using an employment template for a non-executive appointment and creating employment rights by accident.
• Promising a protection, such as full indemnity for any breach, that the Act makes void.
• Giving a fixed term over two years without the member approval.
• Different notice periods in the contract and the Articles.
• No statement of who pays the tax on remuneration.

Putting it together

A sound contract starts with a decision about the relationship, then builds the terms to match. For an executive director, use a two-part structure: a contract of service for the executive role and a short letter dealing with the board seat, so that removal from the board does not leave the employment terms unclear. For a non-executive director, use a letter of appointment that sets fees, duties, confidentiality, insurance and exit, and avoids features of employment such as fixed hours or benefits.

Before signing, check the Articles for rules on remuneration approval and resignation, confirm that any term over two years has member approval under section 157, and agree who will file the change with the Registrar. After signing, keep the contract with the board minutes that approved it. A short review each year, alongside the directors’ report, catches changes in role that quietly turn an office-holder into an employee. Our article on notice periods, resignation and removal covers the exit side in more detail.

The short version

Decide whether the person holds an office, a job or an independent engagement, then draft for that relationship. Expect the Companies Act to override promises about removal, indemnity and long guaranteed terms, and the Employment Act to override any attempt to reduce minimum employment rights.

Frequently asked questions

This article is general information on Kenyan law as at its publication date, not legal advice. Reading it does not create an advocate and client relationship.